The week of November 4 was rough for the stock market in general, but oil took it on the chin even harder. NYMEX crude was at $48.50 on Monday, but it fell to under $44.00 per barrel before closing at $44.07 on Friday. After weeks of being close to $50 per barrel, the price of oil is now challenging three-month lows.
It turns out that the OPEC production cut is not as solid once you get the countries asking for (or taking) exceptions. And then on Friday, Platt’s reported what everyone should have assumed anyway: OPEC nations had not started cutting back on production, In fact, OPEC had a record output of 33.54 million barrels per day in October.
Despite all the woes in the market, valuations being high, the Federal Reserve wanting to raise interest rates and the election, the reality is that these have all added up to a mere minor road bump so far. Investors are still looking for bargain investments in an expensive stock market, and they have managed to find a way to buy every major sell-off for over five years now.
It is crucial that investors understand that many of these oil and gas stocks have recovered handily from their lows of late 2015 or early 2016. While some oil and gas companies remain under extreme duress, others have rallied as much as 100% to 200% off of their panic-induced bottoms.
24/7 Wall St. tracks many analyst upgrades and downgrades to find new ideas each day and week. Some of these analyst calls are about stocks to Buy for quick moves or for long-term gains. The week of November 4 brought several key analyst calls looking for handy upside in the oil and gas sector. Investors and traders alike just have to keep in mind that there is no such thing as a free lunch when it comes to investing.
Rig counts in general continue to rise in America, and the banks have by and large suggested in their earnings conference calls that their exposure to energy loan defaults has largely subsided. The credit ratings agencies have even suggested that the worst of the bankruptcies are likely over.
Again, there is no free lunch in investing. The oil patch is no exception. Keep in mind that many analysts on Wall Street have no better information than sophisticated investors or industry professionals. Sometimes analysts also just make the wrong assumptions, and other times outside forces beyond anyone’s control mess up an otherwise great thesis.
In an effort to avoid extra risk in a period of higher volatility, 24/7 Wall St. has focused on the large-cap and mid-cap names that were more well known by investors. Some of the moves in the small-cap and more speculative companies can look zany, even in periods of minor selling. Here are five very positive analyst calls in the oil and gas sector for the week ending November 4, 2016.
Chevron
Chevron Corp. (NYSE: CVX) performed better than rival Exxon Mobil Corp. (NYSE: XOM) after earnings. Despite a down day on Friday, Chevron closed up 1% for the week. There were numerous analyst calls here, but key was that Chevron was raised to Buy from Neutral and added to the prized Conviction Buy list at Goldman Sachs early in the week (at Exxon’s expense).
Goldman Sachs sees Chevron now as more attractive than Exxon after earnings, and the firm assigned a $118 price target for the stock. Even with the drop in oil this last week, the pre-call price of $103.82 was lower than the $104.78 share price at Friday’s close. Jefferies also reiterated its Buy rating and raised its target to $120 from $116 on Chevron, and price target hikes were also seen this week from analysts at Scotia Howard Weil, Credit Suisse, JPMorgan and elsewhere.
Chevron has a 52-week trading range of $75.33 to $107.58, but its consensus analyst price target of $111.71 earlier in the week was up to $114.25 by Friday.
Cimarex Energy
On November 4, Cimarex Energy Co. (NYSE: XEC), which is an independent oil and gas exploration and production in Oklahoma, Texas and New Mexico, was raised to Positive from Neutral by Susquehanna Financial. The firm assigned a $148 price target, versus a $121.53 prior close, but that was after a 5.3% drop the prior day. Cimarex was up 0.3% at $121.91 late on Friday, but late-day selling took shares down over $1.00 on the day to $120.11 at the closing bell.
Still, Cimarex was above $128 earlier in the week prior to earnings, and the stock was north of $130 the prior week. Earnings beat estimates but revenue was soft and production guidance appears to have weighed on the stock. Cimarex has a consensus price target of $150.91 and a 52-week range of $72.77 to $142.20 and a market cap of $11.4 billion.
Encana
RBC Capital Markets raised Encana Corp. (NYSE: ECA) to Outperform from Market Perform on November 4, but the price target was maintained at $13. The prior closing price was $9.84, after a 5.8% gain, and Encana closed out the week at $9.80. Jefferies also reiterated its Buy rating, and it has an even higher $14 price target. Encana has a 52-week range of $3.00 to $11.74 and a consensus price target of $12.62, with a $9.4 billion market cap.
Suncor Energy
On November 2, Morgan Stanley raised Suncor Energy Inc. (NYSE: SU) to Overweight from Equal Weigh. The firm said that Suncor is now talking down its appetite for acquisitions and is talking up its desire to focus on its existing projects and opportunities. Earlier in the week, Barclays even said that Suncor remains its favorite name of the large oil stocks, and it reiterated its Overweight rating in Suncor.
The Canadian integrated oil and gas leader has a $48 billion market cap. Its shares closed out the week at $29.18 after a 1.25% drop on Friday, and was down 5.4% for the week. The 52-week range is $18.71 to $31.52, and the consensus price target is $34.24.
Transocean
After a volatile week, with oil’s swing and after earnings, Transocean Ltd. (NYSE: RIG) closed down 2% at $9.67 on Friday for a 5.3% loss on the week. Canaccord Genuity raised its rating to Buy from Hold on November 3, with an $11 price target. Jefferies was more muted by reiterating a Hold rating, but Transocean saw its price target hiked to $11 from $8.50 in a call that still implies upside.
Transocean has a $3.5 billion market cap. Its 52-week trading range is $7.67 to $15.54, and its consensus price target of $9.62. Many investors will recall that Transocean was a $50 plus stock in 2013, but that was a long time ago and a lot of things have happened inside and outside of the company that may make those old levels irrelevant today.
Again, there were many other analyst calls throughout the week in the sector. 24/7 Wall St. wanted to focus on the larger and mid-cap stocks to keep risk in mind during a time of heightened volatility.
You can follow @Jonogg on Twitter if you want the daily analyst calls and research updates directly on your Twitter feed.
Other key news highlights in oil and gas for the week were seen as follows:
- The Smart Sand IPO debuted with a thud.
- Deutsche Bank goes positive on big oil after the sell-off.
- BP’s showed that its earnings were cut in half.
- Will the GE-Baker Hughes merger make it past regulators?
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